Treasury Hopes to Expand New Markets Tax Credit

The Treasury Department announced plans to extend and expand the New Markets Tax Credit with a proposal in the fiscal year 2011 budget to provide $5 billion in credits to speed recovery in hard-hit communities.

Treasury Secretary Tim Geithner traveled to Raleigh-Durham, N.C., on Thursday to meet with individual and small business recipients of New Markets Tax Credits to discuss how the credits could be used to attract additional investments to help revitalize distressed communities.

"Distressed communities and their small businesses have a hard time attracting investments even in the best of times," he said. "The New Markets Tax Credit helps these communities attract new investors and ensure they stay invested long enough for businesses to overcome obstacles and grow. That's why the President expanded the New Markets Tax Credit through the Recovery Act last year and why we're seeking to reform, extend and broaden the reach of these credits going forward."

The program is designed to spur growth in distressed communities by catalyzing private sector investments that create jobs and enhance access to capital for small businesses and community development. To restore demand and broaden the credit's appeal, Geithner announced Thursday that Obama is asking Congress to change the NMTC so it can be used to offset not only investors' regular federal income taxes but also the taxes they owe under the alternative minimum tax, including where NMTC allocations have been made but where money has not yet been invested.

Under the Recovery Act, the Obama administration expanded the allocation for the credits to $5 billion for each of 2008 and 2009. Geithner said the proposal in the President's FY 2011 budget would provide for an additional $5 billion in New Markets Tax Credits allocation in 2010 and still another $5 billion in 2011. In addition, the Treasury Department and the IRS are developing guidance to help provide investors with greater certainty whether they will qualify for and be able to benefit from the credit.

The NMTC is credited with encouraging recipients to invest more than $12 billion in distressed communities through 2008, helping to create, save or support hundreds of thousands of local jobs. The NMTC has helped finance a variety of activities in distressed urban and rural communities throughout the United States, including alternative energy companies, charter schools, health care facilities, timberlands, child care providers, supermarkets, manufacturers, processors, distributors, and business incubators.

To support a healthy level of investment in low‐income communities, the Obama administration has proposed allowing the NMTC to offset AMT liability. Since current law does not allow NMTC credits to offset AMT liability, the investor base for the credit has been limited. The economic downturn has strained the investor base even further. Making the credit available to AMT taxpayers would put the credit on equal footing with other tax credits that can offset the AMT, according to a fact sheet distributed by the Treasury Department. The administration believes it would also bolster investment in the NMTC, particularly among investors that currently pay the AMT.